CEO Turnover and Ownership Structure: Evidence From the U.S. Property–Liability Insurance Industry

This article examines the impact of ownership structure on the relation between firm performance and chief executive officer (CEO) turnover in the U.S. property–liability insurance industry. Theoretical implications of stock versus mutual ownership structures on the performance–turnover relation are ambiguous. Our empirical results indicate that CEO turnover is less responsive to firm underwriting performance in mutual insurers compared to stock insurers. In fact, we find that while CEO turnover for stock firms is negatively related to prior performance, no such relationship is found for mutual insurers. These results hold while controlling for board structure and other relevant factors.     

The causal effect of board size in the performance of small and medium-sized firms

Empirical studies of large publicly traded firms have shown a robust negative relationship between board size and firm performance. The evidence on small and medium-sized firms is less clear; we show that existing work has been incomplete in analyzing the causal relationship due to weak identification strategies. Using a rich data set of almost 7000 closely held corporations we provide a causal analysis of board size effects on firm performance: We use a novel instrument given by the number of children of the chief executive officer (CEO) of the firms. First, we find a strong positive correlation between family size and board size and show this correlation to be driven by firms where the CEO’s relatives serve on the board. Second, we find empirical evidence of a small adverse board size effect driven by the minority of small and medium-sized firms that are characterized by having comparatively large boards of six or more members.     

Do women directors improve firm performance in China?

This paper examines the effect of board gender diversity on firm performance in China's listed firms from 1999 to 2011. We document a positive and significant relation between board gender diversity and firm performance. Female executive directors have a stronger positive effect on firm performance than female independent directors, indicating that the executive effect outweighs the monitoring effect. Moreover, boards with three or more female directors have a stronger impact on firm performance than boards with two or fewer female directors, consistent with the critical mass theory. Finally, we find that the impact of female directors on firm performance is significant in legal person-controlled firms but insignificant in state-controlled firms. This paper sheds new light on China's boardroom dynamics. As governments increasingly contemplate board gender diversity policies, our study offers useful empirical guidance to Chinese regulators on the issue.     

Developments in Remuneration Policy

In this article, the former chairman of the International Corporate Governance Network (ICGN) begins by summarizing the guidelines on "Executive Remuneration" that were published by the ICGN in July 2002. Among other changes, the guidelines called for independent remuneration committees, full disclosure of remuneration packages in an annual report, reduced reliance on stock options, elimination of executive loans and CEO bonuses for making acquisitions, better-informed and more active institutional investors, and a "clear mechanism by which shareholders are given the opportunity—possibly through an advisory vote at the annual shareholder meeting—to review and influence remuneration proposals."
Thanks in part to the efforts of the ICGN and growing investor activism, U.K. companies have made "a reasonably swift transition to a position where the majority of their boards are totally independent of management, and free of other potential conflicts of interest." U.S. boards, by contrast, remain "dominated by the imperial CEO" and "have failed to rein in the ambitions and appetites of their CEOs in such circumstances." What's more, U.S. institutional investment managers have failed to hold boards accountable for escalating remuneration. The solution to this problem lies, as suggested above, in "greater transparency, better analysis, and more shareholder monitoring."     

Disclosure,shareholder oversight and the pay–performance link

This paper investigates the effect of increased shareholder oversight and disclosure about executive remuneration on the pay–performance relation, while controlling for contemporaneous changes in corporate governance practice. Our sample consists of 240 ASX-listed firms with annual reports available for each year over the period 2001–2009, a period which straddles the timing of regulatory change. We initially document the conjectured improvements in remuneration disclosure and shareholder oversight in the form of the advisory vote on the remuneration report. Following, we find as predicted a general strengthening of the pay–performance relation over the study period, with the increased sensitivity of reported CEO remuneration to firm performance being primarily related to enhanced remuneration disclosure and the non-binding shareholder vote on the remuneration report. Our results lead us to conclude that enhanced oversight over executive remuneration arrangements brought about by regulatory change has positively impacted the executive remuneration process by strengthening the pay–performance relation and making the process appear more accountable.     

Does board gender diversity affect renewable energy consumption?

This paper examines the effect of board gender diversity on renewable energy consumption. Using a panel of 11,677 firm-year observations from the USA for 2008–2016, we find a positive relationship between board gender diversity and renewable energy consumption. Moreover, boards require two or more women for women to have a significant impact on renewable energy consumption, consistent with the critical mass theory. Further, we document that the positive impact of female directors on renewable energy consumption stems from female independent rather than female executive directors. Finally, we find a positive effect of the interaction between renewable energy consumption and board gender diversity on firm financial performance. Our findings are robust to different identification strategies and estimation techniques.     

The effects of board characteristics and sustainable compensation policy on carbon performance of UK firms

This study examines the effects of board characteristics and sustainable compensation policy on carbon reduction initiatives and greenhouse gas (GHG) emissions of a firm. We use firm fixed effect model to analyse data from 256 non-financial UK firms covering a period of 13 years (2002–2014). Our estimation results suggest that board independence and board gender diversity have positive associations with carbon reduction initiatives. In addition, environment-social-governance based compensation policy is found to be positively associated with carbon reduction initiatives. However, we do not find any relationship between corporate governance variables and GHG emissions of a firm. Overall, our evidence suggests that corporate boards and executive management tend to focus on a firm's process-oriented carbon performance, without improving actual carbon performance in the form of reduced GHG emissions. The findings have important implications for practitioners and policymakers with respect to the effectiveness of internal corporate governance mechanisms in addressing climate change risks, and possible linkage between corporate governance reform and carbon related policies.     

Freedom of choice between unitary and two-tier boards: An empirical analysis

We examine board structure in France, which since 1966 has allowed firms the freedom to choose between unitary and two-tier boards. We analyze how this choice relates to characteristics of the firm and its environment. Firms with severe asymmetric information tend to opt for unitary boards; firms with a potential for private benefits extraction tend to adopt two-tier boards. Chief executive officer turnover is more sensitive to performance at firms with two-tier boards, indicating greater monitoring. Our results are broadly consistent with the Adams and Ferreira (2007) model and suggest that gains result from allowing freedom of contract about board structure.     

Corporate board and board committee independence,firm performance,and family ownership concentration: An analysis based on Hong Kong firms

This study examines whether the relationship between corporate board and board committee independence and firm performance is moderated by the concentration of family ownership. Based on a sample of Hong Kong firms, we find no significant association between the independence of corporate boards or board committees and firm performance in family firms, whereas board independence is positively associated with firm performance in non-family firms. Additionally, our findings show that the proportion of independent directors on the corporate boards of family firms is lower than that of non-family firms, but we find no significant difference in the representation of independent directors on the key committees of corporate boards between family and non-family firms. Overall, these results suggest that the “one size fits all” approach required by the regulatory authorities for appointing independent directors on corporate boards may not necessarily enhance firm performance, especially for family firms. Thus, the requirement to appoint independent directors to the corporate boards of family firms needs to be reconsidered.     

Us knows us in the UK: On director networks and CEO compensation

We analyze the relation between CEO compensation and networks of executive and non-executive directors for all listed UK companies over the period 1996-2007. We examine whether networks are built for reasons of information gathering or for the accumulation of managerial influence. Both indirect networks (enabling directors to collect information) and direct networks (leading to more managerial influence) enable the CEO to obtain higher compensation. Direct networks can harm the efficiency of the remuneration contracting in the sense that the performance sensitivity of compensation is then lower. We find that in companies with strong networks and hence busy boards the directors' monitoring effectiveness is reduced which leads to higher and less performance-sensitive CEO compensation. Our results suggest that it is important to have the ‘right’ type of network: some networks enable a firm to access valuable information whereas others can lead to strong managerial influence that may come at the detriment of the firm and its shareholders. We confirm that there are marked conflicts of interest when a CEO increases his influence by being a member of board committees (such as the remuneration committee) as we observe that his or her compensation is then significantly higher. We also find that hiring remuneration consultants with sizeable client networks also leads to higher CEO compensation especially for larger firms.     

Women in the boardroom and their impact on governance and performance

We show that female directors have a significant impact on board inputs and firm outcomes. In a sample of US firms, we find that female directors have better attendance records than male directors, male directors have fewer attendance problems the more gender-diverse the board is, and women are more likely to join monitoring committees. These results suggest that gender-diverse boards allocate more effort to monitoring. Accordingly, we find that chief executive officer turnover is more sensitive to stock performance and directors receive more equity-based compensation in firms with more gender-diverse boards. However, the average effect of gender diversity on firm performance is negative. This negative effect is driven by companies with fewer takeover defenses. Our results suggest that mandating gender quotas for directors can reduce firm value for well-governed firms.     

The Importance of Board Quality in the Event of a CEO Death

We examine board quality and executive replacement decisions around deaths of senior executives. Stock price reactions to executive deaths are positively related to board independence. Controlling for such factors as the deceased's stockholdings, outside blockholdings, board size, and whether the deceased was a founder, board independence is the most significant factor explaining abnormal returns. Board independence is particularly important when there is no apparent successor and firm performance is poor. The results are consistent with independent boards being reluctant to discipline poorly performing incumbent managers, but nevertheless using the opportunity of an executive death to improve the quality of management.     

Governance Structure and Firm Performance in Private Family Firms

Although a large proportion of firms are family owned and most family firms are private, our understanding of private family firms is limited. Using confidential information on family relationships between board members, CEOs, and shareholders, this is the first study to provide large‐scale evidence on the association between governance structure and firm performance in family‐controlled private firms. Our sample is unique as it covers almost all private limited liability firms in Norway, spans 11 years, traces firm ownership to ultimate owners, and identifies family relationship using data on kinship, marriage, and adoption. The results show a U‐shaped relationship between family ownership and firm performance. Higher ownership of the second largest owner, higher percentage of family members on the board, stronger family power, and smaller boards are associated with higher firm performance. In addition, the positive association between the ownership of the second largest owner and firm performance also occurs when the second largest owner is a member of the controlling family, but the association is stronger when the second largest owner is a non‐family member. We further test the relative importance of these test variables and find that ownership structure is more associated with firm performance than board structure.     

The costs of a (nearly) fully independent board

A significant and growing percentage of U.S. firms now have boards where the CEO is the only employee director (hereinafter fully independent boards). This paper studies whether and how this practice impacts board effectiveness. I find that fully independent boards are associated with a significant reduction in firm performance. Further tests suggest two channels for this effect. First, full independence deprives the board of spontaneous and regular access to the firm-specific information of other senior executives. Second, full independence eliminates the first-hand exposure of future CEOs to board-level discussions of strategy, which steepens the learning curve for eventually promoted candidates.     

Board composition,grey directors and corporate failure in the UK

This study examines the effect of board composition on the likelihood of corporate failure in the UK. We consider both independent and non-independent (grey) non-executive directors (NEDs) to enhance our understanding of the impact of NEDs' personal or economic ties with the firm and its management on firm performance. We find that firms with a larger proportion of grey directors on their boards are less likely to fail. Furthermore, the probability of corporate failure is lower both when firms have a higher proportion of grey directors relative to executive directors and when they have a higher proportion of grey directors relative to independent directors. Conversely, there is a positive relationship between the likelihood of corporate failure and the proportion of independent directors on corporate boards. The findings discussed in this study support the collaborative board model and the view that corporate governance reform efforts may have over emphasised the monitoring function of independent directors and underestimated the benefits of NEDs' affiliations with the firm and its management.     

Controlling shareholders,board structure,and firm performance: Evidence from India

We examine the prevalence and performance impact of controlling shareholders and study corporate board structures and ownership structures in 1796 Indian firms. Families (founders) are present on the boards in 63.2 (65.5) percent of the sample firms. On average, founders own over 50% of outstanding shares. In contrast to the findings of Anderson and Reeb (2003) in the U.S. context, we find that controlling shareholder board membership in Indian firms has a statistically significant negative association with Tobin's Q. Higher proportion of independent directors, higher institutional ownership or larger firm size does not appear to mitigate this relationship. Overall, board membership of controlling shareholders appears to be costly for minority shareholders.     

The Effects of Outside Directors and Board Shareholdings on the Relation Between Chief Executive Compensation and Firm Performance

Critics of corporate governance have suggested that improvements in board monitoring will arise from more independent boards consisting of outside directors and from increased stock ownership by directors. Presumably these changes should result in more rational, more defensible compensation decisions in which pay is clearly tied to results. In this paper, we test the premise that boards with a relatively higher proportion of outsiders and boards with significant shareholdings maintain a closer link between corporate performance and executive pay than do boards with fewer outsiders and boards holding little stock. The results of the study, based on a sample of 268 large corporations, are mixed. As expected, boards with significant shareholdings maintain a stronger linkage between compensation and firm-level performance. This finding persists even after controls are included for CEO and outsider shareholdings. Contrary to expectations, however, evidence was not found that firms with a higher proportion of outsiders on the board of directors relate compensation more strongly to firm results.     

Social Concentration on Boards,Corporate Information Environment and Cost of Capital

Prior evidence on the relationship between demographic diversity in corporate boards and firm performance is mixed. Some studies have found that the relationship between board attributes and firm performance is driven by a firm's information environment. This study examines whether corporate transparency also impacts the relationship between gender and ethnic diversity of directors and firm performance. To test this hypothesis, I use a Herfindahl Index based on directors’ gender and ethnicity to measure board diversity, and an opacity index based on analyst following, analyst forecast error, bid‐ask spread, and share turnover to measure corporate transparency. I find that the cost of capital is positively associated with social concentration on corporate boards and that this premium is larger for highly opaque firms. In further analysis, I find that the interaction of corporate information environment and social concentration on boards is more important for operationally complex firms. Compared with simple firms, operationally complex firms pay a greater premium on their capital if they have a socially concentrated board and an opaque information environment.     

Inside the board room: the influence of nationality and cultural diversity on cross-border merger and acquisition outcomes

This study is among the first to systematically examine how increasing nationality and cultural diversity on the boards of large U.S. corporations influence their cross-border merger and acquisition (CBMA) decisions. We find that firms with foreign representation on boards more frequently engage in less profitable CBMAs. We also find that the negative role of foreign directors in the strategic decision-making process is due at least in part to the cultural differences between foreign and U.S. directors, especially in transactions with a high degree of uncertainty. Finally, we show that the adverse effect of foreign directors prevails in the post-SOX (Sarbanes–Oxley Act) period and reduces with longer foreign director tenure and more inclusive board culture. Overall, our findings suggest the presence of foreign directors could negatively affect CBMA decision-making effectiveness, consistent with the argument that national cultural diversity hinders communication and collaboration within boards.

     

Private Equity vs. PLC Boards in the U.K.: A Comparison of Practices and Effectiveness

The consistently higher returns generated by the most successful private equity firms have been attributed in part to their willingness to take on high levels of debt and their ability to exit from their investments at attractive multiples. But recent research suggests that the largest contributor to the superior performance of the best PE firms has been their ability to improve the operating performance of the companies they buy. And as the authors of this article argue, a key source of such improvements are fundamental differences in the way boards function in the public and private realm.
Using in-depth interviews with 20 executives who have served on both PE and plc boards of relatively large U.K. companies, the authors provide a number of suggestive insights into such differences:
Perhaps the most visible of these differences is the "single-minded" focus of PE boards on "value creation," as contrasted with the focus of plc boards on issues of "governance" and "compliance."
Whereas PE boards view their role as "leading" the strategy of the firm and overseeing its execution by top management, plc boards are described as "monitoring" or "accompanying" strategies that are proposed and executed by management.
Whereas PE boards report near-complete alignment of objectives between executive and non-executive directors, plc boards are described as having multiple commitments to and priorities that are divided among multiple stakeholders.
Finally, whereas PE board members undergo an intensive "due diligence" process when joining boards, have frequent ongoing contacts with management, and focus heavily on the cash-generating capacity of the business, initiations of plc board members are much more formal and ceremonial, their dealings with operating management are few and limited, and the information provided them has an "accounting" orientation and covers a broad range of subjects and corporate "responsibilities."